NEWS
Don't re-regulate rail freight
REGULATION: Rail has a major role to play in reducing energy use and addressing environmental concerns in North America, but proposals being debated in the US Congress to increase regulation of the sector could halt much-needed investment in additional capacity, argues Ed Hamberger.
It's been called the freight rail renaissance, and it couldn't have occurred at a more opportune time. With US fuel prices topping $1 a litre and thousands of truckers parking their vehicles because they can't afford to fill up their tanks, Americans are increasingly looking to the railroads for freight transport.
Our figures show that 2006 and 2007 were the busiest two years in history for North America's railroads. Freight volumes topped 2 500 billion tonne-km both years, and more than 12 million trucks rode the rails for the first time ever. Traffic density in terms of average tonne-km per route-km has more than doubled since 1990.
Part of the reason is the efficiency of the steel wheel on steel rail. Last year US railroads moved a tonne of freight an average of 168 km for each litre of diesel fuel - 3·1% further than the year before and a whopping 85% further than they did in 1980. Railroads are four times more fuel-efficient than trucks. If just 10% of the long-haul freight now moving by road moved by rail instead, the USA could save 3·8 billion litres of fuel a year.
Because railroads are more fuel-efficient, they also emit fewer greenhouse gases - the Environmental Protection Agency estimates the advantage at 3 to 1. Shifting that same 10% of long-haul road freight to rail would reduce annual greehouse gas emissions by around 11 million tonnes.
It is clear that freight railroads must be an important part of the solution to high energy costs and cleaning up the environment. But the rail renaissance is threatened by legislation that looks to the past instead of the future. Four bills now being debated in the US Senate and House of Representatives would impose on railroads a regulatory system similar to that which existed prior to 1980, with bureaucrats dictating rates, routes and services.
Last time around the results were nearly disastrous. More than 20% of the railroad industry went into bankruptcy, accident rates soared, and rail's market share dwindled. Realising something had to be done, Congress partially deregulated the industry in 1980 through the Staggers Rail Act.
Allowed to compete like other businesses, US railroads have invested more than $420bn to maintain and improve track, rolling stock and signalling. Freight traffic volumes have almost doubled. Productivity of both infrastructure and employees has more than tripled, and average freight rates have halved in real terms.
Demand for rail freight service is now at the highest level in US history, and is projected to almost double by 2035. But to meet this demand, the capacity of the rail network must grow. Some corridors are already congested and, according to a study completed for AAR last year by Cambridge Systematics, at least one third of the USA's main rail corridors will be congested by 2035 unless capacity is increased substantially. Such expansion will require US$135bn over 30 years. The railroads are already investing heavily - last year, almost $10bn was spent on capital improvements.
Two years ago, the Congressional Budget Office emphasised that 'the railroads' ability to generate profits from which to finance new investments will be critical. Profits are key to increasing capacity because they provide both the incentives and the means to make new investments.' Railroad profitability has improved in recent years, yet it still trails that of other industries.
The legislative proposals to re-regulate the railroad industry and cap freight rates risk decimating those profits. And that almost certainly would halt most expansion projects. Wall Street is emphatic: investment capital for rail expansion would evaporate with re-regulation.
The impact would be felt beyond US shores as well. Railroads have become the vital link for moving consumer goods from ports to inland markets, and exports from US manufacturers, farmers and miners to markets abroad. The lack of efficient rail service would drive up the cost of both imported and exported goods.
The lesson of history is clear. Rail regulation was an abject failure. Deregulation worked.
Edward R Hamberger has been President & Chief Executive Officer of the Association of American Railroads since July 1998. He was previously a managing partner of Baker, Donelson, Bearman & Caldwell in Washington DC, having served as Assistant Secretary for Governmental Affairs at the US Department of Transportation. In 1985 he was appointed as a member of the Private Sector Advisory Panel on Infrastructure Financing, and in 1994 he served as a member of the Presidential Commission on Intermodal Transportation.
